Tod Sacerdoti would rather blaze a trail than follow in the footsteps of competitors, even if he has to create a brand new industry to maintain a lead.
“Everyone always talks about the risk of entering a nascent category, but to me, the riskier decision is doing nothing at all,” says Sacerdoti, the CEO and founder of BrightRoll Inc., the video advertising platform he launched back in 2006.
Although category creators enjoy faster growth and tend to receive higher valuations from investors, most executives would rather watch from the sidelines as a category matures. Conservative leaders are more comfortable introducing incremental changes and battling for market share than venturing into the unknown.
Being the first to enter a new market, however, gives a fledgling business an opportunity to gain an advantage over its actual and potential rivals. In this case, BrightRoll gobbled up market share and went on to become the king of the nascent category.
It now owns the largest independent video ad platform serving 90 percent of the top 50 U.S. advertisers and 17 of the top 20 advertising technology companies. And in true David and Goliath fashion, the eight-year-old startup has one-upped Google several times in the monthly sale of online video ads.
Of course, it hasn’t exactly been a cakewalk; Sacerdoti has had to overcome a fair number of obstacles along the way.
“There’s no way to anticipate the challenges you’ll face in a nascent category and you’ll never have all the answers before you start,” he says. “You just have to take the risk and jump into the market.”
So how can breakthrough companies gain a foothold and go on to define an entire business category? Here’s a look at Sacerdoti’s keys to success.
Focus on the low-hanging fruit
Disruptive firms often fail because their leaders misread market readiness and innovate too quickly, or their development teams grapple with the evolving needs of an embryonic market and bounce from project to project.
“My initial goal was to identify the biggest problems advertisers and publishers were facing in the digital video advertising landscape, solve them with technology or service, and then test and refine our concept,” Sacerdoti says.
“I thought buyers and sellers of video advertising would be clamoring for an automated solution in three to six months,” he says. “In retrospect, it was more like three to four years before they were ready. Prioritizing the low-hanging fruit was our key to survival, especially in the early days.”
Specifically, before development started, Sacerdoti and his team spent hours talking to advertisers and publishers to gain an in-depth understanding of their challenges.
Although both groups lacked systems and tools to reach audiences across the Web, mobile devices and connected TV, BrightRoll endured because Sacerdoti insisted on taking a systematic and disciplined approach to product development.
“It’s critical to get some early wins when you’re trying to get established with limited funds and a small team,” Sacerdoti says. “If a customer wants a customized solution you have to say no. Our prioritization was ruthless.”
Sacerdoti considered several factors before coming up with a core suite of solutions. First, a tool had to appeal to every single customer. But the ultimate litmus test was whether customers were willing to pay for a particular product or service.
“If you can’t grow organically, you won’t survive in a nascent category,” he says. “Focusing on saleable solutions that appeal to the entire market not only maximizes resources, it fosters sustainable, organic growth and gives you the best chance to succeed.”
“The number one question a CEO needs to ask is: Which problems need to be solved today?” Sacerdoti says. “You have to channel your resources toward solutions that generate revenue by addressing your customers’ most pressing needs.”
How does a disruptive CEO like Sacerdoti maintain focus in an industry that’s changing by the hour?
“Lead by example,” Sacerdoti says. “If the CEO is focused, everyone else will be. Getting distracted by the topic de jour is a recipe for failure, especially in a nascent category.”
Create a revolutionary model
Category creators don’t simply develop a cutting-edge product or service. They construct a breakthrough business model. Revolutionizing business processes and creating new standards helped BrightRoll define the nascent video advertising space, seize control and stymie the progress of late-arriving competitors.
For instance, in 2006, buyers and sellers were using manual processes to initiate and track digital advertising transactions. Given consumers’ growing desire to watch TV and video on smartphones and tablets, Sacerdoti knew that prospective customers would eventually outgrow rudimentary pencil and paper tracking systems.
So piece-by-piece, he assembled a groundbreaking, holistic system to manage and monetize the entire procurement process for digital advertising.
“From day one our lens was focused on creating efficiencies,” he says. “Out filter was simple. We kept asking ourselves: What parts of this process can we automate?”
Not only is technology more efficient, it begets sustainable growth. Service businesses aren’t as profitable as technology companies because they must increase staff and overhead as they grow, which extends the path to profitability.
“Software is scalable, so we knew that it would benefit the entire supply chain as the number of transactions increased and the digital advertising market grew,” Sacerdoti says.
Plus, service-based businesses have a hard time maintaining margins and market dominance because they’re easily commoditized, he says. It’s only a matter of time before a manual process becomes automated and the competitive advantage is lost.
“There’s no point in introducing a labor-intensive solution when solving a problem with automation today will get you to a better place tomorrow,” he says.
“There no magic bullet, it’s all about generating more revenue with basically the same infrastructure,” Sacerdoti says. “It sounds simple, but a lot of startups fail because they lose sight of that.”
BrightRoll has not only avoided failure because of its revolutionary business model, it was the first firm in its category to turn a profit, despite raising less capital than its competitors. In fact, the company only has 220 employees, yet it managed to serve 5.6 billion video ads and 156 million unique U.S. viewers in July 2014.
“You want to be the commoditizer not the commoditizee,” Sacerdoti says. “Otherwise, you’re not really a disrupter, you’re just another player fighting for your piece of the pie.”
Accelerate your ramp-up time
The ability to learn quickly and adapt on the fly is critical for trailblazing firms that are looking to find their way in an ambiguous industry. When a company does both, it goes from just surviving to thriving in a nascent category.
“Category creators need a tremendous sense of urgency and ability to get things done because you’re in a race against time,” Sacerdoti says. “Others are waiting for the category to mature and a standard process to emerge before they jump in.”
To shorten BrightRoll’s learning curve, Sacerdoti recruited and hired professionals with experience in adjacent categories. Since new hires only had to learn the nuances of video advertising, infusing specialists from sister categories jumpstarted BrightRoll’s speed-of-execution and development cycles.
“Our plan was to buttress our lack of knowledge by assembling teams of people with experience in adjacent categories,” Sacerdoti says. “You can’t learn everything or you’ll sacrifice productivity and cede your first-mover advantage to the competition.”
For instance, he hired veterans with display and mobile advertising experience. Their knowledge came in handy when there weren’t enough video ads to sustain BrightRoll’s growth. The experts solved the dilemma by creating a video advertising network, giving agencies and advertisers access to large pools of ad inventory.
“Hiring people with adjacent category experience helped us develop a cadence and iterate quickly,” Sacerdoti says. “Of course, we also worked long hours, and while we now have over 200 employees, we’ve been judicious about adding staff.”
Sacerdoti insists that maintaining a small team promotes a sense of urgency and esprit de corps especially in early stage companies.
“Companies become less efficient and lose their edge when they add people and processes,” he says. “Being nimble and hungry is important when you’re trying to get a foothold in a nascent category. We were adamant that we wouldn’t be out worked or out innovated.”
To ensure that new hires fit into BrightRoll’s high-octane environment, Sacerdoti introduced job simulations into the hiring process. Simulations are gaining popularity among high-tech firms, as they give employers a look at how a candidate will perform if given the job, and they give candidates a realistic preview of BrightRoll’s work environment and laser focus.
“Lots of companies have a long list of things they’d like to do,” Sacerdoti says. “But realistically, you can only focus on one or two things at a time.
“Employees trust their CEO to concentrate on the things that give you the greatest chance of success when you’re trying to get a foothold in a nascent category. Don’t let them down.”
How to Contact: BrightRoll Inc. (415) 677-9222 or www.brightroll.com
Focus on the low-hanging fruit.
Accelerate your learning curve and ramp-up time.
Create a revolutionary, sustainable business model.
The Sacerdoti File
Name: Tod Sacerdoti
Title: CEO and Founder
Company: BrightRoll Inc.
Birthplace: Palo Alto
Education: Bachelor’s degree in economics from Yale University and an MBA from Stanford University.
What was your first job and what did you learn from it?
I sold baseball cards at conventions as a kid, which gave me a firsthand look at how products move. It also taught me how to manage gross margin and talk to customers. But my first real job was testing chemical showers at Lockheed Martin. You had to make sure all the chemicals were in place, the caps were on and so forth. I had to be very detailed and diligent to succeed.
Who do you admire in business?
I’ve always admired people who start businesses and are able to scale with their success. Steve Jobs, Bill Gates and Mark Zuckerberg come to mind, but there are hundreds of examples of lower-scale businesses that have been built by entrepreneurs who had broad skills and the humility to know that they were outside their capabilities, yet they still managed to succeed.
What is your definition of business success?
You’re successful when you meet the goals of customers, employees and investors. It’s their lens and opinions that matter. Naturally, that can change at any moment. But your constituents determine when you’re successful as a CEO.
What is the best business advice you ever received?
It’s impossible to know the outcome or the challenges you’ll face when you launch a new venture.But I’ve always believed that action is better than inaction. In fact not taking a chance on an opportunity is the greatest risk of all.